Here’s a misleading fact: the United States has the largest economy in the world.
It makes up nearly a quarter of the global economy and has a GDP of roughly $21.44 trillion.¹ But that statistic doesn’t tell the whole story. The truth is that only a few Americans have truly mastered how money works and the rest are lagging behind. Despite having the largest economy, the U.S. ranks 13th in GDP per capita.²
And it all begins with the state of financial literacy.
Knowing how money works has never been more important. But it’s becoming an increasingly rare skill among Americans. Here’s a quick look at the significance of financial literacy in the modern world and how ignorance is hampering our ability to build wealth.
The importance of financial literacy is increasing.
Americans are faced with a complex world. We have access to unlimited information on everything under the sun, endless opinions on every issue, and infinite options for entertainment. Money is no exception. The two tried and true safety nets of the past—social security and pension plans—can fall short, so we need to figure out how to provide for our own futures. The options for how to save and grow our money are myriad. Now it’s on us to figure out how to build wealth, save for retirement, and leave money behind for our kids.
Understanding how money works isn’t just helpful for achieving those goals. It’s absolutely mandatory. Saving, budgeting, and the power of compound interest are just a few of the concepts that you’ll need to master before you can start building your financial future.
Financial literacy is decreasing.
Americans are less able to plan and provide for their futures than ever. Financial literacy slid from 42% to 34% between 2009 and 2018.³ And that number is significantly lower for Millennials than for the rest of the population, with only 17% able to answer 4 out of 5 basic questions about finances.? That ignorance shows in our decision making and our inability to build wealth. A stunning 33% of Americans have nothing set aside for retirement.? 44% don’t have enough saved to cover a $1,000 emergency.? We’re surrounded by money and opportunity but don’t have the knowledge to convert them into personal wealth.
There are several reasons why financial literacy could be decreasing. Financial education is not widely taught in public schools, with less than half of states requiring a personal finance course for a highschool diploma.? Perhaps we’ve just been slow to keep up with the rapid changes in the global economy. Or maybe some people benefit from having a large chunk of the population stay in financial ignorance. The lack of financial literacy is most likely a combination of all these reasons! The real question is, do you know how money works? And if not, where will you learn?
¹ Caleb Silver, “The Top 20 Economies in the World,” Investopdia, Updated Mar. 18, 2020,https://www.investopedia.com/insights/worlds-top-economies/
² “GDP per Capita,” Worldometers,https://www.worldometers.info/gdp/gdp-per-capita/
³ Andrew Keshner, “Financial literacy skills have taken a nose dive since the Great Recession,” MarketWatch, June 27, 2019,https://www.marketwatch.com/story/americans-financial-literacy-skills-have-plummeted-since-the-great-recession-2019-06-26
? Keshner, “Financial literacy skills have taken a nose dive,” MarketWatch.
? Dani Pascarella, “4 Stats That Reveal How Badly America Is Failing At Financial Literacy,” Forbes, Apr. 3, 2018,https://www.forbes.com/sites/danipascarella/2018/04/03/4-stats-that-reveal-how-badly-america-is-failing-at-financial-literacy/#69cecb072bb7
? Pascarella, “4 Stats That Reveal How Badly America Is Failing At Financial Literacy,” Forbes.
? Ann Carrns, “More States Require Students to Learn About Money Matters,” The New York Times, Feb. 8, 2020,https://www.nytimes.com/2020/02/07/your-money/states-financial-education.html